Yum Plans to Buy China's 'Little Sheep' Chain

Yum Brands, parent of the KFC, Taco Bell and Pizza Hut fast-food chains, said it made a preliminary offer to buy most of the shares of China's Little Sheep restaurants that it does not already own.

A KFC restaurant in Boston.
Steven Senne
A KFC restaurant in Boston.

Yum , which owns 27.2 percent of Little Sheep's stock, said it would wait for approval from regulators before making a formal offer for the remaining shares in the chain, which owns and operates Mongolian hot pot restaurants, primarily in China.

Yum said Little Sheep's chairman and other shareholders would keep a minority interest.

"Should any proposed transaction close at a reasonable price, we would view it as a positive for Yum, as it would further solidify Yum's position as the leading restaurant company in fast-growing China," Janney Capital Markets Mark Kalinowski said in a client note.

Kalinowski disclosed that he owns shares of Little Sheep, which has a market value of about $555 million. Yum's market capitalization is about $24.8 billion, he said.

Little Sheep has more than 300 hot-pot restaurants, primarily in China. Other markets include Japan, the United States — specifically California and Texas — and Canada.

Shares in Yum , which gets more of its profit from China than any other market, closed down 1.9 percent at $52.18.

Trading in Little Sheep shares has been suspended.